When the most powerful and influential country in the world heads to the polls, its outcome affects us all. Here’s your quick guide to how it works, potential outcomes and market reactions.
When is it?
Election day is Tuesday 3 November, although it’s unlikely we’ll know the results until several days later. This is due to unprecedented levels of mail in votes this year.
How it works
It’s not just the presidency and the 435 House of Representative seats up for grabs; with 34 of the 100 US Senate seats also on the ballot there’s a chance for a significant shift in power in Washington.
Currently the Republicans hold the presidency and the Senate while the Democrats hold the House of Representatives.
Success is based on the ‘Electoral College’ system. Each state has a certain number of electoral colleges loosely based on population. The candidate who wins a state gets all its electoral votes. This means you can lose the popular vote but still win the election.
There are 538 electoral votes dispersed through the states so 270 is the magic winning number.
This state-based system is why you see so much focus on those swing states expected to determine the outcome. Arizona, Florida, Michigan, Minnesota, North Carolina, Pennsylvania and Wisconsin are considered to be the key battleground states.
The Protagonists
Yes, it’s Republicans against Democrats, but now that President Trump is essentially the Republican party the main characters are Donald Trump and not Donald Trump, or Joe Biden as he is also sometimes known.
The Incumbent – President Donald Trump
Seems like a dreadful human being. Whether you like him as a person or not, economically he was going ok until the virus hit. Unfortunately, as with most populist charlatans (see also UK and Brazil), a crisis tends to find them out. Running on his Coronavirus successes is a tough gig.
The Challenger – Joe Biden
Too old – appears significantly more than four years older than Trump – but ‘Sleepy Joe’ seems like a nice man. An uninspiring choice but perhaps that’s part of the Democratic strategy. Basically, a safe pair of hands who isn’t Donald Trump.
What’s the likely outcome
The national polls have consistently had Joe Biden anywhere from 5% to 10% ahead depending on which pollster you prefer. And in the battleground states, while the margin is closer, it still mostly favours Biden.
Ah, but wasn’t Hillary up in the polls too?
Yes, but it was closer than this. The polls can be wrong, and a lot can change in this last week. However, it appears that only a seismic shift in sentiment will deliver Trump back into the White House.
Biden wins president, but what about the House of Representatives and Senate?
2011 was the last time the Democrats held both houses of Congress. It is expected they maintain control over the House of Representatives, but there is also a chance they can flip enough of the 34 Senate seats up for grabs to take control of that too.
Will the results be accepted?
This year an estimated 80 million Americans will vote by mail versus the 33 million last time. And some states don’t allow the processing of ballots until election day, so the true results won’t be known for several days after 3 November.
In addition, Republicans have been questioning the veracity of mail-in ballots and suggesting widespread voter fraud is likely. President Trump has also repeatedly said he may not accept the results if he loses. If so, it may have to be settled in the Supreme Court (as in 2000 when George W. Bush was eventually declared the winner at the expense of Al Gore).
How are markets expected to react?
The usual wisdom is that a Republican victory and their ‘low taxes – small government’ mantra appeals more to investors. But markets like certainty, and with a Republican victory appearing slim, we are seeing more commentary talking up the economic benefits of a Democratic win ahead of Trumponomics. Either way, a long drawn out process through the courts is the worst-case scenario.
In 2016 markets initially fell sharply on Trump’s victory before rising even more sharply when investors decided the world wasn’t about to end. Given what 2020 has delivered in news so far, I think a wait and see approach to the election results and subsequent investment decisions is the prudent approach.
I for one would embrace Sleepy Joe. It’d be nice for politics to be boring again.
Simon Briggs is a Director at Keep Wealth Partners.
Keep Wealth Partners Pty Ltd (AFSL 494858). This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different. You should seek advice from a financial planner who can consider if the strategies and products are right for you.
